The "Drive on Washington"
Those that say that there are few similarities between the cultures and structures of the US airline and auto industries either have their head in the sand or refuse to accept the reflection in the mirror. The Big 3’s “Drive on Washington” resumes today as the US auto industry seeks $34 billion in aid from the US government. When I refer to culture and structure, I am referring to decades of negotiations between management and labor that refused to face a commercial reality screaming that things needed to change.
So on the eve of the bailout hearings, the UAW agrees to give up its JOBS bank provision that pays workers, who have been replaced by improved manufacturing practices, as much as 95 percent of their former pay for staying at home. As the Business Week article I link to above notes: “For most of the past 10 years, the car companies preferred to discount models with big rebates rather than cut production, because they had to pay workers no matter what.”
Why does it take an economic apocalypse to finally cause the UAW to make a change that is so obvious?
And, for that matter, why did it take a bloodletting bankruptcy process for the US airline industry to rid itself of so outdated pay structures and protectionist measures that, like with the legacy automobile makers, have made it so difficult for the legacy airlines to compete?
The economics of entitlement may have worked in the 1940’s, but they have not worked for 20 years, and they don’t work today. Not in a global economy.
A Functioning and Profitable Auto Industry in the US
On December 1, the Wall Street Journal in its Review and Outlook wrote a piece entitled: America's Other Auto Industry.
The piece points out the contrast between the two competing auto industries right here in the US – noting in particular that ills of Detroit automakers have not spread to the 113,000 workers at plants with names like Toyota, BMW and Kia that are creating jobs and churning out cars across the US South and Midwest.
These transplants are profitable in part because they are efficient. And they are efficient in part because of progressive labor contracts that give these auto manufacturers flexibility and productivity that is rare if not impossible at their competitors up North. It’s not about wages. According to the article, wages are comparable between the Detroit contingent and the transplants. The real difference is in the benefits – the very legacy costs that so many US airlines shed through bankruptcy. Detroit pays, on average, $29 more per hour for its workers than do the global transplant automakers in America’s other car industry.
The piece talks about desperation and the simple fact that drastic actions should have been taken by the auto industry long ago – well before we had the spectacle of the Big Three auto executives coming hat in hand to Congress seeking a taxpayer bailout for problems the industry could have foreseen long before.
UAW’s leader said it straight when he warned his members that after this “Drive on Washington”, tomorrow’s members should not expect the same benefits that UAW members once enjoyed.
Airline industry: take note. The restructuring began in 2002, but no one should argue that the job is done. Like the UAW’s belated concession to changes to legacy contract language that embraced entitlement, the airline industry also requires a healthy recognition of reality.
Many labor leaders in the airline industry continue to overpromise in an economic environment that virtually ensures under-delivering. And that’s not good for their members, or the overall good of the labor movement in America.
As The Wall Street Journal piece concludes: “There's no natural law that America must have a Detroit automotive industry, any more than steel had to be made for all time in Bethlehem, Pennsylvania or textiles in New England. Britain sold off all its car plants to foreigners and was no less an advanced economy as a result, though it was a healthier one. Detroit may yet adjust to avoid destruction in the best spirit of American capitalism. The other American car industry is a model for how to do it”.
Bankruptcy remains the right approach for the auto makers. Bankruptcy was the right decision for some in the US airline industry as well. Why? Because the industry’s stakeholders do not have the guts to make the necessary changes they know need to be made without a gun (gavel) to their head.
But, bankruptcy does not have to be the answer to position a company to be a stronger competitor in a global environment – unless the stakeholders just cannot find the will to do what they know needs to be done.
More to come.